Pricing VIX options with volatility clustering |
| |
| Authors: | Bo Jing Shenghong Li Yong Ma |
| |
| Institution: | 1. Department of Mathematics, School of Mathematical Sciences, Zhejiang University, Hangzhou, China;2. Department of Financial Engineering, College of Finance and Statistics, Hunan University, Changsha, China |
| |
| Abstract: | We investigate the valuation of volatility index (VIX) options by developing a model with a self-exciting Hawkes process that allows for clustering in the VIX. In the proposed framework, we find semianalytical expressions for the characteristic function and forward characteristic function, and then we solve the pricing problem of standard-start and forward-start options via the fast Fourier transform. The empirical results provide evidence to support the significance of accounting for volatility clustering when pricing VIX options. |
| |
| Keywords: | fast Fourier transform self-exciting Hawkes process VIX options volatility clustering |
|
|
